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The Wealth Distribution and the Demand for Status

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  • Eric R. Young

    (University of Virginia)

Abstract

Standard economic theories of asset markets assume that assets are valued entirely for the consumption streams they can finance. This paper examines the introduction of the demand for status (as a function of wealth) into a model of uninsurable idiosyncratic risk. We find that spirit of capitalism preferences lead to less inequality in wealth and more in consumption. They also imply very different responses to a move from a progressive to a flat income tax; with spirit of capitalism preferences, wealth inequality goes down when the economy moves to a flat tax regime.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0410008.

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Date of creation: 25 Oct 2004
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Handle: RePEc:wpa:wuwpma:0410008

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  1. Gong, Liutang & Zou, Heng-fu, 2002. "Direct preferences for wealth, the risk premium puzzle, growth, and policy effectiveness," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 247-270, February.
  2. Giacomo Corneo, 2000. "The Efficient Side of Progressive Income Taxation," CESifo Working Paper Series 364, CESifo Group Munich.
  3. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
  4. Conesa, Juan Carlos & Krüger, Dirk, 2005. "On the Optimal Progressivity of the Income Tax Code," CEPR Discussion Papers 5040, C.E.P.R. Discussion Papers.
  5. Heng-fu Zou, 1991. "The spirit of capitalism and long-run growth," Policy Research Working Paper Series 630, The World Bank.
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  7. Josep Pijoan-Mas 2 & Antonia Díaz & José-Víctor Ríos-Rull, 2001. "Habit Formation: Inplications For The Wealth Distribution," Economics Working Papers we015114, Universidad Carlos III, Departamento de Economía.
  8. Timothy K. Chue, 2004. "The Spirit of Capitalism and International Risk Sharing," Econometric Society 2004 Far Eastern Meetings, Econometric Society 589, Econometric Society.
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  10. Jianjun Miao, 2004. "Competitive Equilibria of Economies with a Continuum of Consumers and Aggregate Shocks," CEMA Working Papers 460, China Economics and Management Academy, Central University of Finance and Economics.
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  12. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  13. Sergio Rebelo & Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 01/85, International Monetary Fund.
  14. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2004. "Cyclical Dynamics in Idiosyncratic Labor Market Risk," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(3), pages 695-717, June.
  15. Young, Eric R., 2004. "Unemployment insurance and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1683-1710, November.
  16. Smith, William T, 2001. "How Does the Spirit of Capitalism Affect Stock Market Prices?," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 1215-32.
  17. Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
  18. Krusell, Per & Smith, Anthony A., 1997. "Income And Wealth Heterogeneity, Portfolio Choice, And Equilibrium Asset Returns," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 1(02), pages 387-422, June.
  19. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
  20. Christopher D Carroll, 2000. "Portfolios of the Rich," Economics Working Paper Archive 430, The Johns Hopkins University,Department of Economics.
  21. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 837-57, July.
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Cited by:
  1. Johanna Francis, 2008. "Wealth and the Capitalist Spirit," Fordham Economics Discussion Paper Series, Fordham University, Department of Economics dp2008-10, Fordham University, Department of Economics.
  2. Richard M. H. Suen, 2010. "Time Preference and the Distributions of Wealth and Income," Working Papers 201004, University of California at Riverside, Department of Economics, revised Feb 2010.
  3. Gaowang Wang & Heng-fu Zou, 2011. "Foreign Asset Accumulation, Macroeconomic Policies and Mercantilism," CEMA Working Papers 461, China Economics and Management Academy, Central University of Finance and Economics.
  4. Davoine, Thomas, 2012. "Time constraints, saving and old age," Economics Working Paper Series 1221, University of St. Gallen, School of Economics and Political Science.
  5. d’Albis, Hippolyte & Iliopulos, Eleni, 2013. "Collateral constraints and rental markets," Economics Letters, Elsevier, vol. 121(3), pages 436-439.
  6. Yulei Luo & William T. Smith & Heng-fu Zou, 2011. "The Spirit of Capitalism and Excess Smoothness," CEMA Working Papers 484, China Economics and Management Academy, Central University of Finance and Economics.
  7. Yulei Luo & William T. Smith & Heng-fu Zou, 2006. "The Spirit of Capitalism, Precautionary Savings, and Consumption," CEMA Working Papers 274, China Economics and Management Academy, Central University of Finance and Economics.
  8. Luo, Yulei & Gong, Liutang & Zou, Heng-fu, 2010. "A Note On Entrepreneurial Risk, Capital Market Imperfections, And Heterogeneity," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 14(02), pages 269-284, April.
  9. Tokuoka, Kiichi, 2012. "Is wealth accumulation a luxury good?," Economics Letters, Elsevier, vol. 115(3), pages 523-526.

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